Lyn Maddox, the head of PGE's energy trading subsidiary, has seen the worst of it. He's had to maintain a trading business as his company's utility slipped into bankruptcy in 2001-one of largest in U.S. history-as a result of the California crisis. Maddox says he has learned some very valuable lessons from the event-lessons that many in the industry are only beginning to learn as a result of Enron's misadventure.
"I can tell you from experience when you have a bankruptcy event ... as Enron ... as with our utility affiliate Pacific Gas & Electric ... you'll find that some of the credit provisions you have in your trading contracts where you were once a healthy investment grade company and now considered junk is a very challenging event," he says.
One thing that always happens in credit that people forget about is that contracts have to be unilateral in case the tables are turned, Maddox says. "That is oftentimes what haunts you. If you are high investment grade at one point in time and the next thing you know you are junk, your own language will eat you alive.